Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations 3819

EP–15B) or with the Global Priority Mail

sticker (DEC–10) provided by the Postal

Service. (These supplies may be

obtained by calling 800–222–1811.)

Unmarked pieces are subject to the

applicable LC/AO airmail regular rates

and treatment. Pieces paid at the Global

Priority Mail sticker rate must have the

DEC–10 sticker affixed to the address

side of the package.

226.63 Customs

A green customs label must be affixed

if the package is 16 ounces or more,

regardless of its contents. Only

documents and correspondence under

16 ounces do not require a customs

form.

226.7 Size and Weight Limits

226.71 Size Limits

226.711 Flat-Rate Envelope Sizes

a. Small Size—6 x 10 inches.

b. Large Size—91⁄2 x 121⁄2 inches.

226.712 Package Sizes for Variable

Weight Option

a. Minimum length and height: 51⁄2 x

31⁄2 inches.

b. Minimum depth (thickness): .007

inches.

c. Maximum length: 24 inches.

d. Maximum length, height, depth

(thickness) combined: 36 inches.

226.713 Rolls

a. Minimum length: 4 inches.

b. Minimum length plus twice the

diameter combined: 63⁄4 inches.

c. Maximum length: 36 inches.

d. Maximum length plus twice the

diameter combined: 42 inches.

226.72 Weight Limit

Items sent as Global Priority Mail in

envelopes and the variable weight

option must not exceed 4 pounds.

226.73 Special Services

Mailers may obtain certificates of

mailing (see NO TAG). No other special

services such as registry, insurance,

restricted delivery, return receipt, or

recorded delivery are available.

226.8 Mailer Preparation

226.81 Mailer Requirement

Global Priority Mail claimed at the

volume rate must be separated by

geographic rate zone (Western Europe,

Pacific Rim, and Canada) when

presented to the business mail entry

unit unless otherwise authorized by the

USPS. All pieces in a permit imprint

mailing and metered mail must be

facing the same direction.

226.82 Deposit of Mail

Global Priority Mail pieces paid by

permit imprint and pieces claimed at

the Global Priority Mail volume rates

must be deposited at a business mail

acceptance unit as authorized by the

postmaster in the designated Global

Priority Mail sites for weighing. Single

piece variable weight option may be

deposited in the normal manner of

deposit for Global Priority Mail. Flatrate envelopes with postage affixed may

be deposited in any Express Mail Street

collection box or other such place where

Express Mail is accepted. Metered mail

must be deposited in locations under

the jurisdiction of the licensing post

office except as permitted under DMM

P030.

226.83 Pickup Service

On call and scheduled pickup service

are available for Global Priority Mail

from the designated Global Priority Mail

acceptance cities. There is a charge of

$4.95 for each pickup stop, regardless of

the number of pieces picked up. (See

DMM D010 for standards of pickup

service.) Pickup is not available for

Global Priority Mail pieces if paid by

permit imprint or claimed at the volume

rate.

Stanley F. Mires,

Chief Counsel, Legislative.

[FR Doc. 98–1935 Filed 1–26–98; 8:45 am]

BILLING CODE 7710–12–P

DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 382

[Docket No. R–158]

RIN 2133–AB19

Determination of Fair and Reasonable

Guideline Rates for the Carriage of

Bulk and Packaged Preference

Cargoes on U.S.-Flag Commercial

Vessels

AGENCY: Maritime Administration,

Department of Transportation.

ACTION: Final rule.

SUMMARY: The regulations at 46 CFR

part 382 prescribe the administrative

procedures and methodology for

determining fair and reasonable rates for

the carriage of dry and liquid bulk and

packaged preference cargoes on United

States commercial cargo vessels.

MARAD is issuing this rule to prescribe

cost averaging as the methodology used

for determining rates and to implement

conforming procedural changes.

MARAD is also reducing information

collection under these regulations.

DATES: This final rule is effective

January 29, 1998.

FOR FURTHER INFORMATION CONTACT:

Michael P. Ferris, Director, Office of

Costs and Rates, Maritime

Administration, Washington, DC 20590,

Tel. (202) 366–2324.

SUPPLEMENTARY INFORMATION: Section

901(b)(1) of the Merchant Marine Act of

1936 (the Act), as amended (46 App.

U.S.C. 1241(b)), cited as the Cargo

Preference Act of 1954, requires that at

least 50 percent of any equipment,

materials or commodities purchased by

the United States or for the account of

any foreign nation without provision for

reimbursement, or acquired as the result

of funds or credits from the United

States, shall be transported on privately

owned U.S.-flag commercial vessels, to

the extent that such vessels are available

at fair and reasonable rates. In 1985,

section 901 was amended to exclude

certain programs from the application of

cargo preference and to raise the U.S.-

flag share to 75 percent on certain

others. Upon request, MARAD provides

fair and reasonable rates (also referred to

as guideline rates) to U.S. shipper

agencies. Section 901(b)(2) of the Act

provides the authority for MARAD (by

delegation from the Secretary of

Transportation) to issue regulations

governing the administration of section

901(b)(1). In 1989, MARAD issued

regulations at 46 CFR part 382 (‘‘Rule’’),

that initially became effective on

January 1, 1990.

Under the 1990 Rule, MARAD

established fair and reasonable rates, socalled guideline rates, based on each

individual vessel’s costs which applied

to the ocean borne portion of cargo

transportation. The guideline rate

consisted of four components: (1)

Operating costs; (2) capital costs; (3)

port and cargo handling costs; and (4)

brokerage and overhead. The operating

cost component of the guideline rate for

each participating vessel reflected actual

historical vessel operating costs

escalated to the current period by

utilizing factors for wage and non-wage

costs. All eligible annual operating costs

are added together for each vessel and

divided by the total number of operating

days for that vessel to yield a daily

operating cost.

Each vessel’s actual reported fuel

consumption at sea and in port forms

the basis of the guideline rate’s fuel cost

segment. The actual fuel consumption

of each vessel is multiplied by the

corresponding projected number of

voyage days at sea and in port to

calculate total units of fuel consumed.
3820 Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations

Current fuel prices are applied to fuel

consumed to produce the fuel segment

of the operating cost component.

MARAD then adds the totals of the fuel

and non-fuel operating cost segments to

produce the operating cost component

for the voyage.

The capital cost component is

presently calculated individually for

each participating bulk vessel and

consists of an allowance for

depreciation and interest, plus a

reasonable return on investment.

Depreciation is calculated by the

straight-line method, based on a 20-year

vessel economic life and utilizing a

residual value of 2.5 percent. However,

if the owner acquired an existing vessel,

the vessel is depreciated by the straightline method over the remaining period

of its 20-year economic life, but not

fewer than 10 years. Capitalized

improvements are depreciated straightline over the remainder of the 20-year

period, but not fewer than 10 years.

For the purpose of calculating interest

expense, MARAD assumes that original

vessel indebtedness is 75 percent of the

owner’s capitalized vessel cost and that

principal payments are made in equal

annual installments over a 20-year

period. To compute the interest cost, the

owner’s actual interest rate is applied to

the constructed outstanding debt on the

vessel. Where the owner has a variable

interest rate, MARAD uses the owner’s

rate prevailing at the time of calculation,

and if there is no interest rate available,

MARAD selects an appropriate interest

rate.

MARAD allows a return on capital

cost (investment), with two

components, return on equity and

return on working capital. The rate of

return is based upon a five-year average

of the most recent rates of return for a

cross section of transportation industry

companies, including maritime

companies. Equity in the vessel is

assumed to be the vessel’s constructed

net book value less constructed

indebtedness. Working capital is the

dollar amount necessary to cover

operating and voyage expenses. The

annual depreciation, interest, return on

equity and return on working capital are

divided by 300 operating days to

determine a daily amount. The total of

these elements is multiplied by

estimated voyage days to determine the

capital cost component used in the fair

and reasonable rate calculation.

The port and cargo handling cost

component of the guideline rate is

determined for each voyage on the basis

of the actual cargo tender terms for the

commodity, load and discharge ports,

and lot size. Costs used to determine the

port and cargo cost component are

based on the most current data from all

available sources and verified from data

received on completed cargo preference

voyages. The brokerage and overhead

component of the guideline rate is the

aggregate of the cost components for

operating, capital and port and cargo

handling, multiplied by an 8.5 percent

allowance for broker’s commissions and

overhead. The total of these four

components is then divided by cargo

tons (which cannot be less than 70

percent of the vessel’s cargo

deadweight) to determine the guideline

rate.

Under the 1990 rule, whenever a

vessel carries preference cargo and

subsequently transports additional cargo

prior to its return to the United States,

MARAD reexamines the guideline rate

that it calculated for the preference

voyage. This reexamination may result

in the recalculation of the original

guideline rate, incorporating the

additional voyage itinerary, costs and

revenues which occurred as a result of

the carriage of the additional cargo. If a

vessel is scrapped or sold after

discharging a preference cargo, MARAD

adjusts the guideline rate to reflect the

termination of the voyage after

discharge. If the rate received by the

operator for the preference cargo

exceeds the adjusted guideline rate for

the one-way voyage, MARAD informs

the shipper agency who may then

require the operator to repay the

difference in the ocean freight.

Advance Notice of Proposed

Rulemaking

MARAD decided that revising the

Rule could encourage development of a

modern and efficient merchant marine

and reduce government-wide cargo

preference shipping costs. As a result,

on April 19, 1995, MARAD issued an

Advance Notice of Proposed

Rulemaking (ANPRM) (60 FR 19559),

soliciting comments from the public. In

the ANPRM, MARAD identified three

alternative methodologies, in addition

to the existing rate methodology, that it

was considering. The three alternatives

were: Foreign Market, Cost Averaging,

and Market Based.

Seven sets of comments were received

in response to the ANPRM. Commenters

represented U.S. shipper agencies,

vessel operators and industry

associations. Comments were offered in

support of, and in opposition to all four

alternatives, with no clear consensus.

Commenters generally supported the

need for guideline rate reform and were

unanimous that any methodology must

encourage investment in efficient

vessels.

Public Meetings

After an initial review of the

comments received on the ANPRM,

MARAD believed it would be beneficial

to meet with interested parties. MARAD

held two meetings. On July 12, 1995,

members of the shipping community

and other interested parties met with

MARAD. On July 14, 1995, MARAD met

on the same subject with representatives

of the United States Department of

Agriculture (USDA) and the United

States Agency for International

Development (AID), the major

government shipper agencies.

As a result of MARAD’s experience in

determining guideline rates and the

information received from the ANPRM

and meetings with interested parties, on

February 28, 1997, MARAD published a

Notice of Proposed Rulemaking (NPRM)

to amend the Rule in order to improve

the fair and reasonable rate-making

process. The following is a discussion of

proposed changes to 46 CFR part 382

and the comments that were received

during the comment period.

Comments

Eight groups submitted comments in

response to the NPRM of February 28,

1997. The respondents were the

American Institute of Certified Public

Accountants (AICPA), four U.S.-flag

operators that frequently carry

preference cargoes, a U.S. liner operator,

the U.S. Agency for International

Development (AID), and United States

Department of Agriculture’s Foreign

Agricultural Service (USDA). To

facilitate discussion of the comments,

they will be discussed by subject matter.

General

General comments ran the gamut from

supporting most of the proposals in the

NPRM to urging MARAD not to adopt

the rule. Some questioned the need for

guideline rates or changes to the current

procedures and their legality. One

operator contended that when at least

three bids are received for a preference

cargo the lowest should be assumed to

be fair and reasonable. Another operator

conjectured that averaging will

introduce arbitrary biases and that it is

unfair for operators to be expected to

accept low rates when the market is

poor but still be held to ceiling rates if

the market improves. The same operator

postulated that some operators would

not be able to recover costs at the

averaging rate. In addition, several

operators were concerned that their

knowledge of their competitors’ cost

structure was insufficient for them to

know how the averaging system would

affect their rates.
Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations 3821

The averaging methodology for

calculating fair and reasonable guideline

rates is supported by the legislative

history of Section 901(b)(1) of the Act

(Pub. L. 83–664 or the Cargo Preference

Act of 1954).

The Cargo Preference Act of 1954

requires government agencies to take

such steps as may be necessary and

practicable to assure that at least 50

percent (75 percent for specified bulk

agricultural products) of the gross

tonnage of certain governmentsponsored cargoes, ‘‘which may be

transported on ocean vessels shall be

transported on privately-owned United

States-flag commercial vessels, to the

extent such vessels are available at fair

and reasonable rates for United Statesflag commercial vessels.’’

House Report No. 80, 84th Cong., 1st

Sess. 3 (1955) sets out the reasons for

passage of the Cargo Preference Act of

1954, as follows:

Without some form of assurance of

participation by United States-flag vessels in

the transportation of relief and aid cargoes,

it became clear that the shipping of the

recipient and other maritime nations with

lower operating costs would be able to

underbid American-flag vessels and

eventually transport much, if not all, of these

cargoes to the irreparable detriment of the

American merchant marine.

H.R. Rep. No. 80 also addressed

administration of the Cargo Preference

Act of 1954 and, as relevant here,

discussed the meaning of ‘‘fair and

reasonable rates.’’ The question of how

‘‘fair and reasonable rates for United

States-flag commercial vessels’’ should

be calculated was referred to the

Comptroller General of the United

States by the House Merchant Marine

and Fisheries Committee. The

Comptroller General advised the

Committee in a letter dated February 17,

1955, (B–95832), that—

‘‘fair and reasonable rates’’ as used in Pub.

L. 664 * * * would appear to call for

reasonable compensation to the operator,

including a fair profit. However, it seems

apparent that the statute contemplates

average ‘‘fair and reasonable rates,’’ which

may or may not be profitable, or even

compensatory, to a high-cost operator.

Quoted in H. Rep. No. 80, supra, p.

18 (Emphasis in original).

The Committee agreed with the

Comptroller General’s construction of

the law and added,

* * * it should be understood that at any

one particular time market rates may be

considerably less than [the fair and

reasonable rate ceiling], in which event the

chartering agency should feel free to exercise

sound business judgment to secure the

lowest rates possible for the Government.

H. Rep. No. 80, Supra p. 18.

MARAD has sought to develop a costbased system which rewards efficiency

while holding rates in check during

peak periods. Guideline rate procedures

have never guaranteed profitability and

the Agency believes that the

Comptroller’s opinion means that full

cost (plus profit) recovery in the

guideline rate is not required for all

vessels. MARAD also believes that the

averaging methodology is fully

consistent with the Act and that it will

be rare that an operator does not recover

its costs after efficiently executing a

preference voyage at the full guideline

rate.

MARAD’s goal in revising the Rule is

to encourage a modern and efficient

merchant marine while reducing

government-wide cargo preference

costs. A United States General

Accounting Office (GAO) report entitled

CARGO PREFERENCE

REQUIREMENTS—Objectives Not

Significantly Advanced When Used in

the U.S. Food Aid Programs, published

in September 1994, concluded that food

aid programs were paying higher

shipping rates because guideline rate

procedures allowed less efficient

operators to charge higher rates. The

report hypothesized that using average

operating costs for similar sized ships

instead of an individual ship’s operating

costs ‘‘should reduce food aid

transportation costs.’’ MARAD believes

that changing the Rule to use average

costs will be effective in encouraging

efficient operation. In addition,

administrative and technical changes

made to the rule will help reduce time

spent on the program by all parties in

a period of scarce resources.

Finally, comments were received that

relate to how the averaging system will

affect each individual operator. One

operator requested that MARAD

consider providing operators with

hypothetical rates based on recent cost

information and also allow an

additional comment period. Another

requested that MARAD undertake a

thorough effort to educate operators on

the averaging process and its likely

impact on guideline rates.

MARAD does not believe that an

additional comment period will provide

any significant benefit. However, before

the final rule becomes effective,

MARAD will contact each operator with

current costs on file to explain the cost

averaging system and discuss how it

might affect rates. MARAD will also

provide additional instructions and

explanations in a brochure explaining

guideline rate procedures to the general

shipping community. In addition,

MARAD will also provide the average

category costs to operators and updates

on an ongoing basis.

Averaging

MARAD proposed that the operating

costs (including fuel consumption,

capital costs and vessel speed) used in

the construction of the guideline rate be

averaged for all vessels within specific

size categories. The averages would be

computed twice a year, or more

frequently, if necessary. The impact of

the change to averaging would be a

reduction in the guideline rate levels

calculated for less efficient vessels and

an increase in the guideline rate levels

of the more efficient vessels. Although

commenters generally supported the

principle of averaging, it was unclear to

one commenter whether capital costs

would be averaged. Another believed

that the rule should specify how

MARAD will decide which vessels’

costs will be averaged and develop a

method to prevent use of irrelevant cost

data. A third opposed averaging stating

that it would be unpredictable and

inefficient, penalizing newer vessels,

capital improvements and steam-turbine

driven vessels.

Under the averaging system, both

vessel operating and capital costs will

be averaged as will fuel consumption

rates and vessel speed. Some wording

changes have been made in the capital

cost sections of the final rule to clarify

that capital costs are averaged. In regard

to steam-turbine vessels, it is true that

any cost that is greater than the average

creates a disadvantage to the operator of

the higher cost vessel. MARAD shared

the commenter’s concern about impact

on newer vessels that might enter the

fleet and has provided a separate new

vessel allowance. Because capital

improvements are generally undertaken

to create efficiencies in other cost areas,

effective capital improvements should

yield a long-term advantage to the

operator.

Regarding the use of inappropriate

data that could cause the average to be

somehow distorted, MARAD will pay

close attention to data provided to

assure that it yields a meaningful

average. Clearly, if a vessel carried

preference cargo in this program during

the prior year, it will be included in the

average. For other vessels, an operator’s

program participation will be a factor in

determining inclusion in the average.

However, other factors such as the

individual vessel’s program

participation and cost structure will also

be considered.

Vessel Categories

MARAD proposed a four-category

system based on cargo deadweight
3822 Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations

capacity (CDWT) with the cargo

capacity determining which category of

costs were to be used. Six commenters

raised issues concerning categories. The

comments concerning categories fall

into three basic areas: Mixing vessel

types within a category, how and why

the categories were selected, and

alternative category suggestions.

Two commenters opposed assigning

vessels to categories without regard to

vessel type. One commenter stated that

the cost structure of a LASH liner

operation bears no resemblance to the

cost structure of bulk operators. The

other commenter argued that tug and

barges are inappropriate for

transoceanic voyages and should

therefor not be included with vessels

which are fully capable.

It is true that LASH liner operations

have cost structures which are not

comparable to bulk operations.

However, from time to time LASH

vessels have competed for and carried

bulk and bagged commodities outside of

liner operations. To the extent that

LASH vessels are used outside of liner

operations and subject to this rule,

MARAD finds no reason to exclude this

vessel type from the cost discipline that

averaging by categories provides.

In regard to the appropriateness of

transoceanic tug and barge movements,

tugs and barges have regularly competed

for transoceanic cargoes during the last

several years. MARAD sees no reason

why two vessel types competing for the

same cargoes should not be subject to

the same guideline rate methodology.

With respect to how size categories

were selected, MARAD examined the

sizes and costs of vessels that have

carried preference cargo, the number of

vessels of similar size, and the cargo

amounts carried on individual voyages

in the preference trade.

MARAD also considered the

difference between vessel types (i.e.,

bulk carriers, tankers, tug/barges, and

general cargo), and trading patterns in

arriving at the proposed vessel

categories. The analysis placed vessels

in size categories where they compete

primarily with each other and have

similar aggregate cost structures.

MARAD’s proposal to use cargo

capacity rather than vessel size to

determine which category of costs to use

was not generally well received. Two

commenters argued that the approach

was less efficient and could result in

inequities for cargoes just above and

below the category break. After

reviewing the comments and doing

further analysis, MARAD has

reconsidered this approach and now

believes that categories based on vessel

size would be the most effective and fair

to all concerned because costs are more

closely related to vessel deadweight

than cargo deadweight.

One set of comments from industry

and one from government proposed

vessel category sizes different from

MARAD’s. Both proposed five different

category sizes and one proposed

categories broken down by vessel

deadweight (DWT) in lieu of CDWT.

MARAD’s original proposal and the two

alternatives are:

Category MARAD

(CDWT)

(CDWT)

Alternative #1

(DWT)

Alternative #2

I ............................................................................................................................................ <8,000 CDWT .. <12,000 CDWT <10,000 DWT.

II ........................................................................................................................................... 8,000–19,999 ... 12,000–24,999 10,000–19,999.

III .......................................................................................................................................... 20,000–34,999 25,000–37,999 20,000–29,999.

IV ......................................................................................................................................... >35,000 ............ 38,000–50,000 30,000–49,999.

V .......................................................................................................................................... None ................. >50,000 ............ =>50,000.

In response to the proposals, MARAD

constructed guideline rates using the

averaging method with all three

different category size methods. The

analysis showed a more even

progression of rates from one cargo size

to another using the MARAD categories

and that there is little difference

resulting from using CDWT instead of

DWT to establish the MARAD

categories. However, the review resulted

in a modest shift in the break point

between Category I and Category II from

8,000 CDWT to 10,000 DWT. Also, costs

for vessels in the greater than 35,000

DWT category did not display major

variations due to vessel size.

Consequently, the final rule will have

four categories based on vessel size.

Voyage Parameters

The parameters of the pro forma

voyage used in the construction of the

fair and reasonable guideline rate were

addressed by five commenters. Three

comments were received concerning

MARAD’s proposal for constructing

voyages based upon MARAD selecting

the most appropriate port range for the

return leg of the preference voyage,

rather than a return to the load port in

all instances. Although one commenter

objected to the change without stating a

specific reason, two generally supported

the change, as being in keeping with

commercial practices. One suggested

that the return leg always terminate in

the U.S. Gulf, as that is where most

cargo originates. The other suggested

that the language in the rule be

expanded to include specific reference

to the practices of the owner and the

prospects for subsequent employment.

MARAD believes that the method of

voyage construction published in the

NPRM can adequately address these

concerns. Regarding always terminating

in the U.S. Gulf, in certain

circumstances, e.g., consecutive voyages

from the U.S. West Coast, the U.S. Gulf

would not be the appropriate

termination area. The rule already

authorizes MARAD to select ‘‘the most

appropriate’’ port range, so expanding

the language is not necessary.

Since speed would be averaged across

vessel types, MARAD proposed that the

separate weather delay factors in

§ 382.3(e)(6) be eliminated. However,

one commenter pointed out that tug/

barge units will still encounter greater

weather delays than self propelled

ships. As a result of comments received,

MARAD reconsidered this item and the

10% delay factor for computing average

speed for tugs has been retained in the

final rule.

One commenter asserted that a critical

problem with the transportation of bulk

preference cargo is that the risk shifted

to carriers by the use of ‘‘full berth

terms’’ and other land-based

transportation requirements in

preference charter parties. In the NPRM,

MARAD noted the differences in risk

between load and discharge terms and

indicated its intention to use delay

factors which reflect the inherent risks,

therefore no change has been made to

the final rule.

Finally, a government commenter

requested that MARAD continue to

calculate one-way rates at the time of

booking for vessels sold or scrapped

prior to their return to the United States.

The final rule continues to provide for

a one-way rate, but with a more precise

definition of the circumstances when it

applies. The one-way rate will continue

to be calculated at the same time as the

full round-trip guideline rate.
Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations 3823

Guideline Rate Adjustments

MARAD’s proposal to eliminate

backhaul adjustments elicited

comments from three operators and two

government shippers. The comments

from the operators strongly favor

MARAD’s proposal, while the

government shippers opposed it.

MARAD believes the proposal to

eliminate the backhaul adjustment

provides the operator with a greater

ability to increase its commercial

carriage and U.S.-flag participation in

the U.S. foreign trade. Further, MARAD

believes that increased commercial

carriage could help lower overall

program costs, and therefore the

proposal is unchanged in the final rule.

As a result of substitutions, voyage

variations, add-on cargoes, and similar

recalculations, MARAD averages two

guideline rate calculations for each

cargo actually fixed. MARAD intends to

substantially reduce these recalculations

and generally determine only one

guideline rate for each preference cargo.

The guideline rate based on the initially

requested vessel and cargo will also be

applicable to all other vessels in the

same tonnage category that might

actually carry the cargo and for cargo

amounts plus or minus five percent of

the original request. An exception

would be made when a vessel eligible

to receive the ‘‘new vessel allowance’’ is

substituted for an older vessel, or vice

versa.

Two government commenters and one

operator also raised the issue of whether

rates would be recalculated when an

outbound commercial cargo is added on

to a preference cargo. The government

commenters argued that additional

revenue sources should always trigger a

recalculation. The other commenter

noted that add-on commercial cargo is

similar to the backhaul adjustment and

its elimination from the guideline

process would provide an incentive to

bid on commercial cargo. MARAD will

recalculate rates, if requested, for any

add-on cargo which increases cargo size

by more than five percent.

Cargo Size (Seventy Percent Limitation)

Three commenters provided views

regarding MARAD’s proposal to

eliminate the seventy percent limitation

in the current rule. This provision

currently provides that, for the purposes

of calculating guideline rates, calculated

cargo tonnage shall not be less than 70

percent of the vessel’s cargo capacity.

All commenters agreed with MARAD’s

proposal noting that the seventy percent

rule has limited competition. Therefore,

§ 382.3(f) of the final rule will provide

that the determination of cargo tonnage

in the guideline rate shall be based on

the actual cargo tonnage booked or

considered for booking on the voyage.

Capital Costs

Five changes designed to simplify or

clarify rate calculations were proposed

within this cost category. Comments

pertaining to these changes and other

issues related to capital cost were

received from six of the eight

commenters.

The first change adds a clarifying

cross reference in § 382.3(b)(2)(ii). In the

final rule the paragraph explicitly

references paragraph (b)(2)(i) for the

periods of depreciation to be used in

determining interest expense in the

guideline rate.

Three commenters expressed views

on MARAD’s second proposal,

elimination of the 2.5 percent residual

value in the calculation of depreciation.

Although two commenters supported

elimination, the third had a

conceptional problem with the

elimination of residual value in the

depreciation calculation. Because

MARAD believes that eliminating

residual value simplifies the guideline

rate process while conforming to

industry practice, residual value is

eliminated from the depreciation

calculation in § 382.3(b)(2)(i) of the final

rule.

The third proposed change to the

capital cost calculation concerns

situations where interest rates are not

available for certain capitalized items.

MARAD proposed the ten-year

Treasury-bill (T-bill) rate plus one

percent as an appropriate and readily

available substitute. One commenter

supported the change while a second

contended that a change would

probably result in a reduction for some

operators. This concern is unfounded;

the rate will not be substituted when the

operator provides an interest rate.

Accordingly, § 382.3(b)(2)(ii) is

amended in the final rule to specify the

ten-year T-bill rate plus one percent as

the rate used in the fair and reasonable

rate calculation when no interest rate is

available or for vessels without

mortgage debt.

The fourth proposed change, which

was supported by the commenters who

voiced a view, related to the interest rate

used to calculate capital costs when an

owner has a variable interest rate. In the

final rule § 382.3(b)(2)(ii) has been

amended to specify January 1 and July

1 as the dates on which the interest rates

in effect would be used for the

calculation of fair and reasonable rates.

The final proposed change to capital

costs was the addition of a statement in

the new § 382.3(b)(3) noting that the

return on working capital is a voyage

related capital cost element and thus not

part of the averaged costs. This

proposed change elicited comments

from two persons. One agreed with the

change. The second commenter

appeared to misunderstand the

proposal. The final rule includes the

proposed change in new § 382.3(b)(3).

The rate of return used in the

calculation of capital costs also elicited

extensive responses from four

commenters, even though no change

was proposed. A government

commenter objected to the ‘‘policy of

guaranteeing’’ a return on investment,

suggesting that if the ‘‘guarantee’’

cannot be eliminated, it be based on a

rate of return for maritime companies

only. The first part of this comment

misinterprets the function of the fair

and reasonable guideline rates in the

preference market. Guideline rates

provide a ceiling on market rates

charged for the carriage of preference

cargoes on U.S.-flag vessels. Far from

‘‘guaranteeing’’ a rate of return, a

guideline rate limits the shipowner’s

profitability. In addition, the

Comptroller’s opinion specifically states

that a reasonable profit should be

included in the rate. Regarding the

suggestion to base the rate of return on

maritime companies only, MARAD

believes that a maritime profitability

index would be too narrow to assure a

reasonable return during all periods.

In general, the three operator

commenters expressed the opposite

point of view from the above. They

generally expressed the belief that a

higher rate of return is necessary to

compensate for a high risk investment

in ocean shipping. One commenter

suggested that the rate of return for

working capital should be based on

short term business loan rates such as

prime plus a spread.

Although these comments have an

element of truth, they also illustrate the

dilemma of choosing an appropriate rate

of return. MARAD believes that the

suggestion to use a short term loan rate

for the return on working capital is a

reasonable suggestion. However, shortterm loan rates are volatile and the

suggestion ignores the question of a

specific spread to use. In the end, the

Agency believes the current procedures

have worked well in the past and

should continue to do so in the future.

The final rule stipulates a rate of return

on working capital and equity based on

the five-year average of return on

stockholders’ equity for a cross section

of transportation companies.
3824 Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations

New Vessel Allowance

One goal of revising Part 382 has been

to encourage newer and more efficient

vessels to enter the cargo preference

market. To this end, MARAD proposed

including an allowance for acquisition

capital in the guideline rates for both

newly constructed vessels and vessels

acquired prior to the fifth anniversary of

their construction. The proposal

provided that the allowance be included

for a period of five years after

acquisition by the owner. Comments

were received from four persons on this

provision. Commenters believed that the

provision was insufficient and that a

strong market would be necessary for

the operator to benefit from the

allowance. One commenter asserted that

the allowance would only be received if

MARAD paid it directly, while another

supported the concept but only for

newly constructed vessels. As a result of

the comments, MARAD modified the

new vessel allowance to provide a

longer allowance period for newer

vessel owners. In the final rule, the

annual new vessel allowance will equal

ten percent of the vessel’s capitalized

costs during the first year following

construction or acquisition, and will

decline by one percentage point each of

the subsequent years until the vessel is

ten years old. No allowance will be

included for vessels more than ten years

of age.

Information Collection Requirements

MARAD proposed reducing reporting

and auditing requirements while

continuing to recognize the agency’s

need for accurate cost and financial

information. Two favorable comments

were received on MARAD’s proposals to

reduce the amount and frequency of

data reporting. To implement these two

concepts, the final rule amends

§ 382.2(b)(8) to authorize aggregate

schedule filings, and § 382.2(c) to

change post-voyage filing to a

semiannual requirement.

Two changes in reporting

requirements were proposed to reduce

the audit burden on operators, the

Department of Transportation’s Office of

the Inspector General (OIG), and

MARAD. The first change, intended to

alleviate the need for auditing by the

OIG, allowed an operator to have its

submissions certified by an independent

certified public accountant (CPA). One

operator and the AICPA pointed out a

problem with the specific phrase used

by MARAD. The AICPA recommended

replacement language specifying a

report based on the independent CPA’s

performing an engagement consistent

with professional standards, i.e., an

attestation engagement. In addition,

there was strong sentiment from three

commenters for MARAD retaining the

right to audit. It was never MARAD’s

intent to relinquish the right to request

audits, but to alleviate some of the need

for audit. However, it is MARAD’s

intention in deciding which operator’s

data to audit in any given year to factor

the level of CPA review into its

considerations. In consideration of the

comments, the wording in § 382.2 of the

final rule has been changed to include

the language suggested by the AICPA.

The second proposed change in

reporting requirements was to require

the operator to use the accounting

treatment it already uses for its own

records and audited financial statements

for its cost submissions to MARAD. One

commenter believed that drydocking

accruals should still be allowed even if

a company expenses its drydocking

costs. Another remarked that reporting

consistency is critical when using

averaging and MARAD should review

the reported data and provide guidance

to ensure consistent cost data. While it

would be advantageous if all operators

reported in the same manner and all

operators accrued for drydocking costs,

the Agency believes that the averaging

process itself will even out the

drydocking costs in much the same way

as the accrual process.

MARAD also proposed three minor

reporting changes. First, reporting the

Official Coast Guard Identification

Number (official number) would be

required; second, the DWT requirement

would be amended to require only

summer DWT in metric tons and

eliminate the requirement for Suez and

Panama Canal net register tons; and,

finally, the definition of ‘‘operating day’’

would be clarified. Only positive

comments were received on these

proposed changes and the proposals are

included in the final rule.

Brokerage and Overhead

Part 382.3(b)(5)(d) specifies that

‘‘allowance for broker’s commission and

overhead of 8.5 percent shall be added

to the sum of the operating cost

component, the capital cost component,

and the port and cargo handling cost

component.’’ Two comments were

received on this component of the rate.

The first questioned whether 8.5% is an

appropriate allowance. The second was

whether brokerage and overhead could

be allowed on pass through items.

MARAD believes that the 6% allowance

for overhead costs that is added to the

2.5% brokerage included in guideline

rates is still appropriate. Regarding

brokerage and overhead on pass through

items, fair and reasonable guideline

rates are for ocean transportation only

and an allowance in the guideline rate

for inland transportation items is

outside the scope of this rulemaking.

Total Revenue Rates

When more than one cargo has been

booked on a vessel subject to the

guideline rate regulations or when there

are multiple load and/or discharge

ports, calculating individual rates for

particular parcels and/or destinations,

as currently required by § 382.3(f) and

(g), is impossible. Accordingly, MARAD

proposed calculating a ‘‘Total Revenue

Rate’’ when this occurs. The guideline

rate would be calculated normally, but

the final rate would be expressed as

gross revenue for the total voyage, rather

than as a rate per ton. If the revenue

from the sum of the individual parcels

does not exceed the total revenue

calculated in the guideline, the

individual rates would be considered

fair and reasonable.

A shipper agency expressed concern

that total revenue rates could result in

inequities to recipients or shipper

agencies if a high fixture and a low

fixture combine to result in an

acceptable total revenue. One operator

expressed the belief that using a total

revenue rate for combined parcels

penalizes the operator for initiative in

combining parcels and another asked

that the calculation method be specified

and shown by example. Responses to

these concerns are drawn from

experience with the total revenue

concept, which has been used under

waiver authority.

Experience to date has not shown

operators frequently blending a high

fixture rate with a low one. Typically,

combining cargoes allows an operator to

spread fixed costs more widely and bid

a highly competitive rate for each cargo.

Using the total revenue approach allows

MARAD to combine the fixed costs for

the whole voyage with the variable costs

for the individual parcels. But because

the voyage’s fixed costs and the parcels’

variable costs are not derived from the

same tonnage, a rate per ton is not

meaningful.

MARAD does not believe that total

revenue rates penalize operators for

combining cargoes. Total revenue rates

actually reflect the practices of the

operators when they combine cargoes.

Using a total revenue approach simply

requires comparing all the costs for all

parcels to be carried on the voyage to

the total revenue proposed in the

operator’s bids, thereby obviating the

need to artificially allocate fixed costs to

one cargo or the other.

As requested, an example of a total

revenue rate follows:
Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations 3825

CARGO

Cargo Amount

metric tons Type Terms Load port Discharge port

Rice ............... 10,000 Bagged ........ FBT ......................................... Galveston, TX ......................... Durban, South Africa.

Wheat ........... 10,000 Bulk .............. VLFO (4000/1000) SHEX ....... New Orleans, LA ..................... Beira, Mozambique.

Corn .............. 10,000 Bulk .............. FBT ......................................... New Orleans, LA ..................... Mombassa, Kenya.

VOYAGE

Port Activity Port time Distance Sea time Port costs Cargo costs

New Orleans, LA ........................... Load wheat and corn .................... 8.38 .................... .................... $35,000 $25,000

Bunker ........................................... 1.00 .................... .................... .................... ....................

Galveston, TX ............................... Load rice ....................................... 8.49 390 1.25 35,000 180,000

Durban, South Africa ..................... Discharge rice ............................... 10.18 8234 28.32 25,000 100,000

Beira, Mozambique ....................... Discharge wheat ........................... 12.73 702 2.24 25,000 0

Mombassa, Kenya ........................ Discharge corn .............................. 8.49 1149 3.67 25,000 60,000

Bunker ........................................... 1.00 .................... 0.00 .................... ....................

U.S. Gulf ........................................ Return ........................................... 0.00 9986 31.92 0 0

Total Days .......................... ....................................................... 48.25 .................... 85.40 145,000 385,000

FAIR AND REASONABLE RATE CALCULATION

Fuel Costs ...................................................................................................................................................................................... $415,000

Vessel Operating Costs ................................................................................................................................................................. $1,500,000

Port Costs ...................................................................................................................................................................................... $145,000

Cargo Costs ................................................................................................................................................................................... $365,000

Other Cargo Costs ......................................................................................................................................................................... $20,000

Capital Costs ................................................................................................................................................................................. $740,000

Brokerage & Overhead .................................................................................................................................................................. $270,725

Total .................................................................................................................................................................................... $3,455,725,000

Total Revenue Rate ............................................................................................................................................................ $3,455,725

Average Rate per ton .......................................................................................................................................................... $115.19

FIXTURE AND FAIR AND REASONABLE RATE COMPARISON

Cargo Rate bid Amount Revenue Fair and reasonable rate

Rice ................................................................................................................... $125.00 10,000 $1,250,000

Wheat ............................................................................................................... 90.00 10,000 900,000

Corn .................................................................................................................. 95.00 10,000 950,000

Total ....................................................................................................... ........................ 30,000 3,100,000 1 $3,455,725

Average .................................................................................................. 103.33

1Since voyage revenue is less than total revenue from the fair and reasonable rate, the individual bids are considered fair and reasonable.

The preceding example details the

areas where costs vary and overlap. In

order to provide individual rates, both

direct and overall voyage costs must be

allocated to each cargo. This is very

difficult to accomplish fairly. Also, as

this example illustrates, individual

fixture rates can be higher or lower than

the average rate, and yet the operator’s

total effort yields revenue that is fair

and reasonable. The only unique aspect

of the total revenue rate is the

elimination of the step which divides

the total allowable costs by the cargo

tons to derive a rate per ton.

MARAD believes that the total

revenue approach represents the best

method for protecting the interests of all

parties when cargoes are combined.

Furthermore, combining cargoes has

become increasingly common in the

past two years. Consequently, in the

final rule, § 382.3 (f) and (g) will allow

the use of either a cost per ton or other

measure that MARAD determines

appropriate.

Revised Rate Methodology

The guideline or fair and reasonable

rate established by MARAD, which

applies only to the ocean borne portion

of cargo transportation, consists of four

components: (1) Operating costs; (2)

capital costs; (3) port and cargo

handling costs; and (4) brokerage and

overhead. The operating cost

component of the fair and reasonable

rate will reflect average vessel operating

costs for vessels within the specified

size categories based on the historical

data submitted in accordance with

§ 382.2 of this rule. MARAD will update

the operating costs to the current period,

utilizing escalation factors for wage and

non-wage costs. The averages for each

category of vessels will be calculated at

least twice per year. To the extent

vessels are time chartered or leased,
3826 Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations

operators will submit both operating

and capital costs, including all

capitalized costs and interest rates for

vessels subject to capital leases.

Vessel costs will be placed in

categories based on the vessel’s summer

deadweight tons (DWT). The categories

will be as follows:

Category I—Less than 10,000 DWT

Category II—10,000—19,999 DWT

Category III—20,000—34,999 DWT

Category IV—Greater than 35,000 DWT

All eligible annual operating costs for

vessels within a category will be added

together and divided by the total

number of operating days for those

vessels to yield a daily operating cost.

The cost will be indexed to the current

year and multiplied by estimated total

voyage days to yield the operating cost

segment for the voyage.

Fuel consumption will be determined

on the basis of actual reported fuel

consumption at sea and in port for

vessels within the same category. The

average fuel consumptions of vessels in

the category will be multiplied by the

projected number of voyage days at sea

and in port to yield total fuel consumed.

MARAD will obtain current spot market

fuel prices from published sources at

bunkering ports, consistent with sound

commercial practice, and apply them to

fuel consumed to produce the fuel

segment of the operating cost

component. The total of the fuel and

non-fuel operating cost segments will be

added together to yield the operating

cost component for the voyage.

The capital cost component will be an

average based on vessels in the

applicable size category. It will consist

of an allowance for depreciation and

interest and a reasonable return on

investment. Depreciation for vessels in

a category will be straight-line based on

a 20-year economic life. However, if the

owner acquired an existing vessel, the

vessel will be depreciated on a straightline basis over the remaining period of

its 20-year economic life, but not fewer

than 10 years. Capitalized

improvements will be depreciated

straight-line over the remainder of the

20-year period, but not fewer than 10

years, commencing with the

capitalization date for those

improvements.

For the purpose of calculating interest

expense, MARAD will assume that

original vessel indebtedness is 75

percent of the owner’s capitalized vessel

costs and that principal payments are

made in equal annual installments over

the economic life of the vessel. To

compute the interest cost, the owner’s

actual interest rates will be applied to

the vessel’s outstanding constructed

debt, using the depreciation schedule in

§ 382.3(b)(2)(ii). Where the owner has a

variable interest rate, the owner’s rate

prevailing when the average capital cost

component is calculated will be used. In

cases where there is no interest rate

available, and for operators without

vessel debt, MARAD will use the tenyear T-bill rate plus one percent.

Return on investment will have two

components, return on equity and

return on working capital. The rate of

return will be based upon a five-year

average of the most recent rates of return

for a cross section of transportation

industry companies, including maritime

companies. Equity used will be the

vessels’ constructed net book values less

constructed principal amounts. Working

capital will be voyage based and be the

dollar amount necessary to cover

operating and voyage expenses.

A new vessel allowance will be

included in the capital component of

newly built vessels and vessels acquired

when five years of age or less. This

allowance, which will be paid until the

vessel is ten years old, will equal ten

percent of the vessel’s capitalized costs

during the first year following

construction or acquisition, and will

decline by one percentage point each of

the subsequent years. The voyage

allowance will be the annual amount

divided by 300 operating days and

multiplied by estimated voyage days.

The average annual depreciation,

interest, and return on equity for vessels

in the category will be divided by 300

operating days to determine a daily

amount. The total of these elements will

be multiplied by estimated voyage days

and added to the return on working

capital and the new vessel allowance to

determine the capital cost component

used in the fair and reasonable rate

calculation.

The port and cargo handling cost

component will be determined for each

voyage on the basis of vessels in the

category and the actual cargo tender

terms for the commodity, load and

discharge ports, and lot size. The costs

will include applicable fees for

wharfage and dockage of the vessel,

canal tolls, cargo loading and

discharging, and all other voyage costs

associated with the transportation of

preference cargo. Costs used to

determine the port and cargo cost

component will be based on the most

current data from all available sources

and verified from data received on

completed cargo preference or

commercial voyages.

To determine the brokerage and

overhead component of the fair and

reasonable rate, MARAD will add the

cost components for operating, capital,

and port and cargo handling and

multiply that sum by an 8.5 percent

allowance for broker’s commissions and

overhead. The total of these four

components, expressed as total revenue

or as a rate per ton, whichever is most

applicable, will be the fair and

reasonable rate.

If a vessel is scrapped or sold after

discharging a preference cargo, and the

vessel does not return to the United

States as a U.S.-flag vessel, the guideline

rate will be adjusted to reflect the

termination of the voyage after cargo

discharge. If the rate received by the

operator for the preference cargo

exceeds the adjusted guideline rate for

the one-way voyage, the operator may

be required to repay the difference in

ocean freight to the shipper agency.

In special circumstances, certain

procedures prescribed in this rule may

be waived, provided the procedures

adopted are consistent with the Act and

with the intent of these regulations.

Rulemaking Analysis and Notices

Executive Order 12866 (Regulatory

Planning and Review); DOT Regulatory

Policies and Procedures; Pub. L. 104–

121

This rulemaking is not considered an

economically significant regulatory

action under section 3(f) of E.O. 12866.

It is not considered to be a major rule

for purposes of Congressional review

under Pub. L. 104–121. It is anticipated

that savings to the Government of less

than $1 million per year will result.

Accordingly, the program will not have

an annual effect on the economy of $100

million or more. While this rule does

not involve any change in important

Departmental policies, it is considered

significant under DOT Regulatory

Policies and Procedures and E.O. 12866

because it addresses a matter of

considerable importance to the maritime

industry and may be expected to

generate significant public interest.

Accordingly, the Office of Management

and Budget has reviewed this rule.

When the NPRM was published,

MARAD estimated the potential savings

to the Government from this rulemaking

by recalculating 167 rates for the years

1992 through 1995 using the revised

methodology. This sample reflected the

operators and countries in the complete

data base. Extrapolating from the sample

showed that averaging could have saved

three million dollars in ocean freight for

preference cargoes during the period.

The comments received on the NPRM

expressed concern that this analysis was

flawed because it contained vessels

which have since been either scrapped

or withdrawn from the preference trade.
Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations 3827

In response, MARAD recomputed the

average costs for 1993 and 1994 using

only vessels that are currently available

for the preference trade. Table I shows

the costs derived for each category from

the reduced sample which were then

used to calculate guideline rates using

the averaging method. Table II

summarizes the results of these

calculations and shows the percentage

savings that would have been realized

using averaging.

TABLE I.—DAILY COSTS USED IN GUIDELINE RATE AVERAGES FOR CY 1993 AND 1994

Categories Year Operating

costs

Capital

costs

Fuel (at

sea)*

Fuel (import)*Speed

(knots) Sample size

Category I ............................................... 1993 ............. $4,087 $1,224 $1,600 $222 6.25 8

(<10,000 vdwt) ........................................ 1994 ............. 3,321 1,294 1,600 195 6.25 8

Category II .............................................. 1993 ............. 6,077 3,337 3,468 275 8.25 15

(10–19,999 vdwt) .................................... 1994 ............. 6,207 3,543 3,137 260 8.37 15

Category III ............................................. 1993 ............. 11,447 5,435 3,270 443 12.66 4

(20–35,000 vdwt) .................................... 1994 ............. 10,686 4,604 4,366 674 13.79 6

Category IV ............................................. 1993 ............. 11,943 6,355 4,963 526 13.54 13

(>35,000 vdwt) ........................................ 1994 ............. 12,757 6,138 4,492 680 13.36 14

Extrapolating the estimated 1.05%

savings based on actual fixtures during

1993 and 1994 to the period 1993 to

August 1997, yields a savings of nearly

one million dollars as a result of

averaging. This savings estimate is

approximately one-third the savings

estimated with the ship mix used in the

initial analysis. The reason for this is

that declining levels of cargoes since

1994 have forced operators to bid very

low rates to obtain cargoes, thus forcing

many inefficient vessels out of the trade.

Nevertheless, a million dollar savings is

significant.

TABLE II.—SAVINGS IN SAMPLE RATES FROM USING AVERAGING SYSTEM FOR RATE CALCULATION

Sample size Fixture revenue

Averaging

savings

Averaging vs

guideline Metric tons

Category I ................................................................................. 18 6,098,662 ($96,481) ($692,251) 91,956

Category II ................................................................................ 22 20,953,285 0 ($1,017,582) 296,068

Category III ............................................................................... 10 20,155,736 ($611,594) ($835,651) 224,247

Category IV ............................................................................... 26 59,655,091 ($416,255) ($429,445) 1,003,997

Sample total ................................................................... 76 106,862,774 ($1,124,330) ($2,974,929) 1,616,268

.................... ........................ ¥1.05% ¥2.32% ........................

Federalism

The Maritime Administration has

analyzed this rulemaking in accordance

with the principles and criteria

contained in Executive Order 12612 and

has determined that it would not have

sufficient federalism implications to

warrant the preparation of a Federalism

Assessment.

Regulatory Flexibility Act

The Maritime Administration certifies

that this regulation would not have a

significant economic impact on a

substantial number of small entities.

There are approximately twenty-five

vessel operators that participate in this

program, none of which are small

entities.

Environmental Assessment

This final rule has no environmental

impact and an environmental impact

statement is not required under the

National Environmental Policy Act of

1969.

Paperwork Reduction Act

This rulemaking reduces the current

requirement for the collection of

information. The Office of Management

and Budget (OMB) has reviewed and

approved the information collection and

record keeping requirements (approval

number 2133–0514) in the current rule

under the Paperwork Reduction Act of

1995 (44 U.S.C. 3501 et seq.). Public

comments were requested in the NPRM

at 62 FR 9150, published February 28,

1997. Closing date for comments was

April 29, 1997. No comments were

received regarding this information

collection. A subsequent 30-day notice

was published July 21, 1997 by the

Office of the Secretary of Transportation

at 62 FR 39046. Comments were due on

or before August 20, 1997. No comments

were received as a result of this notice.

In accordance with the Paperwork

Reduction Act of 1995, MARAD

received an extension from OMB of

approval for three years for this

information collection.

Unfunded Mandates

Under the Unfunded Mandate Reform

Act (Pub.L. 104–4) the Maritime

Administration must consider whether

this rule will result in an annual

expenditure by State, local and tribal

governments, in the aggregate, or by the

private sector, of $100 million or more

(adjusted annually for inflation). The

Act also requires that the Maritime

Administration identify and consider a

reasonable number of regulatory

alternatives and, from those alternatives,

select the least costly, most costeffective, or least burdensome

alternative that will achieve the

objectives of the rule. As stated above,

by this rule the Maritime

Administration is reducing regulatory

burden, i.e., collection of information,

on the public. This final rule does not

result in an annual expenditure by

State, local and tribal governments, in

the aggregate, or by the private sector, of

$100 million or more and is the least

burdensome alternative that will

achieve the objective of the rule.

List of Subjects in 46 CFR Part 382

Agricultural commodities,

Government procurement, Loan

programs—foreign relations, Maritime

carriers, Reporting and record keeping

requirements.
3828 Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations

Accordingly, 46 CFR Chapter II is

hereby amended by revising part 382, to

read as follows:

PART 382—DETERMINATION OF FAIR

AND REASONABLE RATES FOR THE

CARRIAGE OF BULK AND PACKAGED

PREFERENCE CARGOES ON U.S.-

FLAG COMMERCIAL VESSELS.

Sec.

382.1 Scope.

382.2 Data submission.

382.3 Determination of fair and reasonable

rates.

382.4 Waivers.

Authority: 46 App. U.S.C. 1114, 1241(b);

49 CFR 1.66.

§ 382.1 Scope.

The regulations in this part prescribe

the type of information that shall be

submitted to the Maritime

Administration (MARAD) by operators

interested in carrying bulk and

packaged preference cargoes, and the

method for calculating fair and

reasonable rates for the carriage of dry

(including packaged) and liquid bulk

preference cargoes on U.S.-flag

commercial vessels, except vessels

engaged in liner trades, which is

defined as service provided on an

advertised schedule, giving relatively

frequent sailings between specific U.S.

ports or ranges and designated foreign

ports or ranges.

§ 382.2 Data submission.

(a) General. The operators shall

submit information, described in

paragraphs (b) and (c) of this section, to

the Director, Office of Costs and Rates,

Maritime Administration, Washington,

D.C. 20590. To the extent a vessel is

time chartered, the operator shall also

submit operating expenses for that

vessel. All submissions shall be certified

by the operators. A further review based

on the independent CPA performing an

engagement consistent with professional

standards, i.e., an attestation

engagement, is recommended.

Submissions are subject to verification,

at MARAD’s discretion, by the Office of

the Inspector General, Department of

Transportation. MARAD’s calculations

of the fair and reasonable rates for U.S.-

flag vessels shall be performed on the

basis of cost data provided by the U.S.-

flag vessel operator, as specified herein.

If a vessel operator fails to submit the

required cost data, MARAD will not

construct the guideline rate for the

affected vessel, which may result in

such vessel not being approved by the

sponsoring Federal agency.

(b) Required vessel information. The

following information shall be

submitted not later than April 30, 1998,

for calendar year 1997 and shall be

updated not later than April 30 for each

subsequent calendar year. In instances

where a vessel has not previously

participated in the carriage of cargoes

described in § 382.1, the information

shall be submitted not later than the

same date as the offer for carriage of

such cargoes is submitted to the

sponsoring Federal agency, and/or its

program participant, and/or its agent

and/or program’s agent, or freight

forwarder.

(1) Vessel name and official number.

(2) Vessel DWT (summer) in metric

tons.

(3) Date built, rebuilt and/or

purchased.

(4) Normal operating speed.

(5) Daily fuel consumption at normal

operating speed, in metric tons (U.S.

gallons for tugs) and by type of fuel.

(6) Daily fuel consumption in port

while pumping and standing, in metric

tons (U.S. gallons for tugs) and by type

of fuel.

(7) Total capitalized vessel costs (list

and date capitalized improvements

separately), and applicable interest rates

for indebtedness (where capital leases

are involved, the operator shall report

the imputed capitalized cost and

imputed interest rate).

(8) Operating cost information, to be

submitted in the format stipulated in 46

CFR 232.1, on Form MA–172, Schedule

310. Operators are encouraged to

provide operating cost information for

similar vessels that the operator

considers substitutable within a

category, as defined in § 382.3(a)(1), in

the aggregate on a single schedule.

Information shall be applicable to the

most recently completed calendar year.

(9) Number of vessel operating days

pertaining to data reported in paragraph

(b)(8) of this section for the year ending

December 31. For purposes of this part,

an operating day means any day on

which a vessel or tug/barge unit is in a

seaworthy condition, fully manned, and

either in operation or standing ready to

begin pending operations.

(c) Required port and cargo handling

information. The port and cargo

handling costs listed in this paragraph

shall be provided semiannually for each

cargo preference voyage terminated

during the period. The report shall

identify the vessel, cargo and tonnage,

and round-trip voyage itinerary

including dates of arrival and departure

at port or ports of loading and discharge.

The semiannual periods and the

information to be submitted are as

follows:

Period Due date

April 1–September 30 ............... January 1.

October 1–March 31 ................. July 1.

(1) Port expenses. Total expenses or

fees, by port, for pilots, tugs, line

handlers, wharfage, port charges, fresh

water, lighthouse dues, quarantine

service, customs charges, shifting

expenses, and any other appropriate

port expense.

(2) Cargo expense. Separately list

expenses or fees for stevedores,

elevators, equipment, and any other

appropriate expenses.

(3) Extra cargo expenses. Separately

list expenses or fees for vacuvators and/

or cranes, lightering (indicate tons

moved and cost per ton), grain-to-grain

cleaning of holds or tanks, and any

other appropriate expenses.

(4) Canal expenses. Total expenses or

fees for agents, tolls (light or loaded),

tugs, pilots, lock tenders and boats, and

any other appropriate expenses. Indicate

waiting time and time of passage.

(d) Other requirements. Unless

otherwise provided, operators shall use

generally accepted accounting

principles and MARAD’s regulations at

46 CFR part 232, Uniform Financial

Reporting Requirements, for guidance in

submitting cost data. Notwithstanding

the general provisions in 46 CFR

232.2(c) for MARAD program

participants, each operator shall submit

cost data in the format that conforms

with the accounting practices reflected

in the operator’s trial balance and, if

audited statements are prepared, the

audited financial statements. Data

requirements stipulated in paragraph (b)

of this section that are not included

under those reporting instructions shall

be submitted in a similar format. If the

operator has already submitted to

MARAD, for other purposes, any data

required under paragraph (b) of this

section, its submission need not be

duplicated to satisfy the requirements of

this part.

(e) Presumption of confidentiality.

MARAD will initially presume that the

material submitted in accordance with

the requirements of this part is

privileged or confidential within the

meaning of the Freedom of Information

Act (FOIA), 5 U.S.C. 552(b)(4). In the

event of a subsequent request for any

portion of that data under the FOIA,

MARAD will inform the submitter of

such request and allow the submitter

the opportunity to comment. The

submitter shall claim or reiterate its

claim of confidentiality at that time by

memorandum or letter, stating the basis

for such assertions of exemption from

disclosure. The Freedom of Information
Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations 3829

Act Officer, or the Chief Counsel of

MARAD, will inform the submitter of

the intention to disclose any

information claimed to be confidential,

after the initial FOIA request, or after

any appeal of MARAD’s initial decision,

respectively.

(Approved by the Office of Management and

Budget under control number 2133–0514)

§ 382.3 Determination of fair and

reasonable rate.

Fair and reasonable rates for the

carriage of preference cargoes on U.S.-

flag commercial vessels shall be

determined as follows:

(a) Operating cost component—(1)

General. An operating cost component

for each category, based on average

operating costs of participating vessels

within a vessel size category, shall be

determined, at least twice yearly, on the

basis of operating cost data for the

calendar year immediately preceding

the current year that has been submitted

in accordance with § 382.2. The

operating cost component shall include

all operating cost categories, as specified

in 46 CFR 232.5, Form MA–172,

Schedule 310, Operating Expenses. For

purposes of these regulations, charter

hire expenses are not considered

operating costs. MARAD shall index

such data yearly to the current period,

utilizing the escalation factors for wage

and non-wage costs used in escalating

operating subsidy costs for the same

period.

(2) Fuel. Fuel costs within each

category shall be determined based on

the average actual fuel consumptions, at

sea and in port, and current fuel prices

in effect at the time of the preference

cargo voyage(s).

(3) Vessel categories. Vessels shall be

placed in categories by deadweight

capacities (DWT), as follows:

Group I—under 10,000 DWT

Group II—10,000—19,999 DWT

Group III—20,000—34,999 DWT

Group IV—35,000 DWT and over.

(b) Capital Component—(1) General.

An average capital cost component for

each category shall be constructed, at

least twice yearly, consisting of vessel

depreciation, interest, and return on

equity.

(2) Items included. The capital cost

component shall include:

(i) Depreciation. The owners’

capitalized vessel costs, including

capitalized improvements, shall be

depreciated on a straight-line basis over

a 20-year economic life, except vessels

purchased or reconstructed when their

age was greater than 10 years old. To the

extent vessels are chartered or leased,

the operator shall submit the capitalized

cost of the vessel owner and imputed

interest rate. If these items are not

furnished, MARAD will construct these

amounts. When vessels more than 10

years old are acquired, a depreciation

period of 10 years shall be used.

Capitalized improvements made to

vessels more than 10 years old shall be

depreciated over a 10-year period. When

vessels more than 10 years old are

reconstructed, MARAD will determine

the depreciation period.

(ii) Interest. The cost of debt shall be

determined by applying each vessel

owner’s actual interest rates to the

outstanding vessel indebtedness.

MARAD shall assume that original

vessel indebtedness is 75 percent of the

owners’ capitalized vessel costs,

including capitalized improvements,

and that annual principal payments are

made in equal installments over the

economic life of the vessels as

determined in accordance with

paragraph (b)(2)(i) of this section. Where

an operator uses a variable interest rate,

the operator’s actual interest rate at the

time of calculation of the average capital

cost component shall be used. The tenyear Treasury bill (T-bill) rate plus one

percent on the first business day of the

year or the first business day on or after

July 1 shall be used for operators

without vessel debt and when the actual

rate is unavailable.

(iii) Return on equity. The rate of

return on equity shall be computed in

the same manner as described in

paragraph (b)(3) of this section. For the

purpose of determining equity, it shall

be assumed that the vessel’s constructed

net book value, less outstanding

constructed principal, is equity. The

constructed net book values shall equal

the owners’ capitalized cost minus

accumulated straight-line depreciation.

(3) Return on working capital. For

each voyage a return on working capital

shall be included as a voyage related

capital cost element, and thus not part

of the averaged costs. Working capital

shall equal the dollar amount necessary

to cover 100 percent of the averaged

operating costs and estimated voyage

costs for the voyage. The rate of return

shall be based on an average of the most

recent return of stockholders’ equity for

a cross section of transportation

companies, including maritime

companies.

(4) New vessel allowance. Newly

constructed vessels and vessels acquired

during or before their fifth year of age

will receive an additional allowance for

acquisition capital as part of the capital

cost element. For the first year following

construction or acquisition by the

operator, a daily amount equal to ten

percent of capitalized acquisition costs,

divided by 300 operating days, shall be

included. This amount shall be reduced

by one percent of capitalized acquisition

costs each subsequent year. No

allowance shall be included after the

tenth year following construction.

(5) Voyage component. The annual

average depreciation, interest, and

return on equity for vessels in each

category shall be divided by 300 vessel

operating days to yield the daily cost

factors. Total voyage days shall be

applied to the daily cost factors and

totaled with the return on working

capital and new vessel allowance for the

voyage to determine the daily capital

cost component.

(c) Port and cargo handling cost

component. MARAD shall calculate an

estimate of all port and cargo handling

costs on the basis of the reported cargo

tender terms. The port and cargo

handling cost component shall be based

on vessels in the category and the most

current information available verified by

information submitted in accordance

with § 382.2(c), or as otherwise

determined by MARAD, such as by

analysis of independent data obtained

from chartering agencies.

(d) Brokerage and overhead

component. An allowance for broker’s

commission and overhead expenses of

8.5 percent shall be added to the sum of

the operating cost component, the

capital cost component, and the port

and cargo handling cost component.

(e) Determination of voyage days. The

following assumptions shall be made in

determining the number of preference

cargo voyage days:

(1) The voyage shall be round-trip

with the return in ballast to a port or

port range selected by MARAD as the

most appropriate, unless the vessel is

scrapped or sold after discharge of the

preference cargo and does not return to

the United States as a U.S.-flag vessel.

In this event, only voyage days from the

load port to the discharge port,

including time allowed to discharge,

shall be included.

(2) Cargo is loaded and discharged as

per cargo tender terms interpreted in

accordance with the ‘‘International

Rules For the Interpretation of Trade

Terms’’ (INCOTERMS) published by the

International Chamber of Commerce.

(3) Total loading and discharge time

includes the addition of a factor to

account for delays and days not worked.

(4) One extra port day is included at

each anticipated bunkering port.

(5) An allowance shall be included for

canal transits, when appropriate.

(6) Transit time shall be based on the

average speed of vessels in the category.

When calculating the vessels’ average

speed, individual vessel speeds will be
3830 Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 /Rules and Regulations

reduced by five percent for selfpropelled vessels and ten percent for

tugs/barges to account for weather

conditions.

(f) Determination of cargo carried.

The amount of cargo tonnage used to

calculate the rate shall be based on the

tender offer or charter party terms. In

instances when separate parcels of

preference cargo are booked or

considered for booking on the same

vessel, whether under a single program

or different programs, a guideline rate

shall be provided based on the

combined voyage.

(g) Total rate. The guideline rate shall

be the total of the operating cost

component, the capital cost component,

the port and cargo handling cost

component, and the broker’s

commission and overhead component.

The fair and reasonable rate can be

expressed as total voyage revenue or be

divided by the amount of cargo to be

carried, as prescribed in paragraph (f) of

this section, and expressed as cost per

ton, whichever MARAD deems most

appropriate.

§ 382.4 Waivers.

In special circumstances and for good

cause shown, the procedures prescribed

in this part may be waived in keeping

with the circumstances of the present,

so long as the procedures adopted are

consistent with the Act and with the

intent of this part.

By order of the Maritime Administrator.

Dated: January 21, 1998.

Joel C. Richard,

Secretary.

[FR Doc. 98–1786 Filed 1–26–98; 8:45 am]

BILLING CODE 4910–81–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 54

[CC Docket No. 96–45; FCC 97–411]

Universal Service Support

Mechanisms

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: The Commission authorized

the Administrator of the universal

service support mechanisms to require

payment of quarterly contributions to

universal service in equal monthly

installments. This action was intended

to ease contributor’s cash flow

problems.

EFFECTIVE DATE: February 26, 1998.

FOR FURTHER INFORMATION CONTACT:

Diane Law, (202) 418–7400.

SUPPLEMENTARY INFORMATION:

I. Introduction

In this Third Order on

Reconsideration (Order), we reconsider,

on our own motion, the Commission’s

decisions governing the amount of

money that may be collected during the

first six months of 1998 for the federal

universal service support mechanisms

for schools and libraries and rural

health care providers. We direct the

administrator to collect only as much as

required by demand, but in no event

more than $25 million per quarter for

the first and second quarters of 1998 to

support the rural health care universal

service support mechanism. We direct

the administrator to collect only as

much as required by demand, but in no

event more than $625 million for the

first six months of 1998, to support the

schools and libraries universal service

support mechanism. These actions will

reduce the financial burdens on

universal service contributors without

jeopardizing the sufficiency of the

support mechanisms. The Commission

may revise the collection caps if we

receive evidence of additional demand

for services. The rules adopted in this

Order will become effective February

26, 1998.

II. Background

1. In the NECA Report and Order (62

FR 41294 (Aug. 1, 1997)), the

Commission established the

administrative structure of the federal

universal service support mechanisms.

The Commission directed the National

Exchange Carrier Association (NECA) to

create an independent subsidiary, the

Universal Service Administrative

Company (USAC), to administer

temporarily portions of the support

mechanisms. The Commission also

directed NECA to create two

independent corporations, Schools and

Libraries Corporation and Rural Health

Care Corporation, to administer portions

of the schools and libraries and rural

health support mechanisms. USAC,

Schools and Libraries Corporation, and

Rural Health Care Corporation are

required to submit to the Commission

quarterly projections of demand and

administrative expenses for their

respective support mechanisms.

2. The schools and libraries and rural

health care support mechanisms are

newly created and have no historical

data upon which to estimate accurately

the demand for services in the initial

months of the support mechanisms. The

Commission specified that the

administrator should collect $100

million per month for the first three

months of 1998 for the schools and

libraries support mechanism and

‘‘adjust future contribution assessments

quarterly based on its evaluation of

schools and library demand for funds,

within the limits of the spending caps.

. . .’’ The Commission further held that,

between January 1, 1998 and June 30,

1998, the administrator ‘‘will only

collect as much as required by demand,

but in no case more than $1 billion.’’

For the rural health care support

mechanism, the Commission directed

the administrator to collect $100 million

for the first three months of 1998. In

addition, the Commission instituted

annual caps on both support

mechanisms, $2.25 billion for the

schools and libraries support

mechanism and $400 million for the

rural health care support mechanism. In

setting forth a collection schedule, the

Commission sought to ensure that

‘‘funds will be available as needed

while avoiding the potential problems

arising from the accumulation of large

amounts of funds in a federal universal

service fund.’’

III. Discussion

3. We conclude that we should adjust

downward the rate of collections for the

schools and libraries and rural health

care support mechanisms during the

first six months of 1998. We anticipate

that this action will not jeopardize the

sufficiency of the support mechanisms.

The annual caps were designed to

estimate the maximum, rather than the

actual, amount of demand for the

schools and libraries and rural health

care universal service support

mechanisms. Based on what we have

learned about the status of preparatory

arrangements being made by schools,

libraries, and rural health care providers

to obtain the benefit of the universal

service support mechanisms, we have

no reason to believe that demand will

reach the maximum projection levels in

the initial implementation stages of

these new support mechanisms. We do

not want to impose unnecessary

financial burdens on service provider

contributors to universal service by

requiring the administrator to collect

funds that exceed demand. We also

wish to ensure the successful

implementation of the schools and

libraries and rural health care support

mechanisms. Accordingly, we find that

it better serves the public interest to

reduce the collection amounts specified

in the Order (62 FR 32862 (June 17,

1997)) for the first six months of 1998,

as described below.

4. Rural Health Care. The rural health

care support mechanism supports the